Retail Disruption

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GUEST OBSERVER
The loss of the high-value young grocery shopper is the biggest risk facing Coles and Woolworths when Amazon disrupts the Australian grocery market.
According to a major new survey of 20,000 Australians conducted by the Roy Morgan Research Institute, while younger Australians like Millennials represent future value for supermarket giants, they also represent the consumers most at risk from the Amazon juggernaut expected to sweep Australian shores in coming months.
An advance briefing by Roy Morgan on their Supermarket Survival Survey revealed that 73 per cent of the highest value younger consumers known as NEO-Millennials already shop online. And they are 85 per cent more likely than the average Australian to shop online. They and their equivalents in Gen X are the fertile feeding ground for Amazon in Australia.
Despite this major shift in the future of shopping behaviour, the survey reveals that supermarket chains have been focusing on what is known as ‘owned media’ – media channels they own and run very well. The best examples of supermarket owned media are their magazines and catalogues.
Their magazine titles, for example, dominate the entire magazine market. The Coles Magazine is Australia’s most read title with 3.2 million readers of an average issue, ahead of Woolworth’s Fresh on 2.7 million readers – both well ahead of Better Homes and Gardens (1.81m), Women’s Weekly (1.76m) and Woman’s Day (1.56m).
However, the research reveals that incumbent supermarket brands may need a new approach to their magazines and catalogues – particularly with the spectre of Amazon looming on the horizon.
The survey reveals that only 2.2 per cent of Australians find magazines useful when purchasing groceries, compared to 49 per cent who find catalogues a useful tool. The Internet (20 per cent), newspapers (6 per cent) and television (5 per cent) are all ahead of magazines as grocery influencers.
In the supermarket category, catalogues rule. In an average 4 weeks 7,179,000 Australians read a Woolworths catalogue, and 7,115,000 read a Coles catalogue. This balance in favour of Woolworths is borne out in the shopping behaviour of Australians with 4.5 million mainly shopping at Woolworths compared to 4.3 million at Coles.
However, future shareholder value and profitable growth of Australia’s supermarket brands lie in the hands of the younger generations like Millennials – particularly the highest value NEO-Millennials. Australia’s 1.5 million NEO-Millennials are even less influenced by magazines with only 1.7 per cent finding them useful when shopping for groceries – in stark contrast to the power of the Internet with 39 per cent using it to inform their grocery spending. Ninety-one per cent of NEO-Millennials are in the top third of discretionary spenders in the economy – and supermarkets are chock-full of discretionary products.
Alarmingly, this high-value supermarket shopper is 157 per cent more likely than the average Australian to buy groceries online. Why is this alarming? While it’s true that a quarter (25.4 per cent) of all Australians say they’d like to buy their groceries online, only 3.7 per cent actually do, seemingly quarantining the big supermarket brands from the Amazon threat.
Elsewhere in the world, the average online grocery behaviour of Amazon-targeted countries is reportedly between 25 and 30 per cent, enabling Amazon to simply transfer online shoppers from existing brands to their Amazon Fresh or Amazon Prime offerings.
In Australia, however, with less than 4 per cent shopping for groceries online, Amazon has to grow the pie before it can take its slice. So, NEO-Millennials are a juicy target for Amazon. They spend their lives online and their online grocery shopping is already approaching 10 per cent. Add to that the fact that sixteen per cent of NEO-Millennials already are Amazon shoppers – 82 per cent more than the average Australian – they have to be considered easy pickings for Amazon.
And because they are younger, they represent lifetime value to the big supermarket chains.
So, how can Australia’s supermarket brands best prepare themselves for the Amazon assault? Certainly not on price or delivery. On all available data, Coles and Woolworths simply cannot win a price war with Amazon. And, despite Coles’ current fulfilment trial using UberRUSH to deliver groceries in Melbourne, the incumbents can’t win on delivery either.
An incumbent supermarket brand may have great supply chain, discounts, sale events, efficient &amp; inexpensive fulfilment, but it had better not have the second-best discounts &amp; fulfilment. When Amazon hits town, every retail brand in its merchandise category line-of-fire will be second best.
The American price / delivery battlefield provides stark evidence. Just look at Walmart, legendary in the US for the cheapest prices across its myriad grocery and general merchandise categories. A US study by Business Insider found that over a diverse basket of 25 grocery &amp; electronics products, Amazon was $US161.05 cheaper than Walmart. And Amazon keeps gazumping it on delivery cost and speed. Unimaginable just a few years ago.
So, what then of the incumbents’ catalogues and magazines? Are they part of the solution?
According to the Supermarket Survival Survey, magazines have a future role to play if the big incumbents adopt the new mantra of ‘think small’. The Supermarket Survival Survey reveals that the biggest threat to the supermarket categories is losing the high-value cohorts across younger generations, those shoppers most likely to already shop online and already consider a familiar Amazon more frictionless, relevant and trustworthy than their brands. These are the consumers motivated by the personal, the local, the handmade and who are moving towards zero friction and the ‘right to forget money’. They are ripe for disruption.
To retain them, Coles or Woolworths might, for example, position Amazon as the global giant, and then make their digital catalogue and magazine content relevant to different (small) communities – geographic communities, NEO-Millennials and communities of interest. Such a strategy would serve to replace the rapidly disappearing local media, highlighting not only the incumbents’ ubiquity but also their local proximity and relevance. Amazon will win on price and delivery but can never win on local authenticity.
So, the catalogues and magazines published by the supermarket incumbents have an opportunity to become their most potent weapons in the looming grocery war, but only with granular sociographic mapping of consumer types, like NEO-Millennials – way beyond geo-demographics and into the realms of local relevance and authenticity.
Dr Ross Honeywill is a social scientist and internationally published author. Executive Director of the Centre for Social Economics, he advises national and global clients on the peak-value consumer ecosystem and can be contacted <a href="https://rosshoneywill.com" target="_blank">here</a>.
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jchancellor-FAypfDUnLy

New Amazon threat to Coles and Woolworths

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Specialty Fashion Group, the owner of Katies, Rivers and City Chic, plans to close 300 of its 1000 stores.
Specialty Fashion shares sit 80% down on their value five years ago, falling to 19.5 cents this week - an eight-year low.
The clothing retailer indicated its plans where to quickly close 100 stores this year.
It signalled 300 stores on "hold over" leases will close by 2020, while accelerating its investment in e-commerce.
Outgoing chief executive Gary Perlstein said 159 of the 300 stores set to close were losing money.
This was about 30% more than in past years.
Most of the loss-making stores are under its Crossroads and Autograph stores.
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j.ballantyne1990-6AQqhLzZaK

300 landlords to lose Specialty Fashion tenancies

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GUEST OBSERVATION
Australians once lax expectations concerning retail delivery times are changing and service providers must adjust, a new survey suggests.
The retail goal posts are shifting, and as a result, businesses need to transform entirely.
CBRE has released a research report about the "Omni-Channel Revolution" the rise of and the importance of melding of shopping, advertising, delivery and payment into one unified buying experience in an increasingly online world.
A shopper’s journey now spans across bricks and mortar stores, social media, apps, desktops and other mobile devices. Constant digital connectivity is a driving force behind evolving customer experience and fulfilment expectations and over 80% of all Australians own a smart phone the newest tool for online shopping.
Online spending in Australia currently accounts for approximately 9% of all retail trade, with this expected to rise to 12% by 2022 accounting for roughly AU$24.4 billion to AU$43.1 billion.
It is estimated that by 2020, a third of in-store retail sales will be in some way influenced by the web. This growth in e-commerce sales will generate demand for an additional 350,000 square metres of distribution space annually. 
<a href="https://www.propertyobserver.com.au/images/2018/6/6/Omni%20Figure%201.png" target="_blank">Click to enlarge</a>
<a href="https://www.propertyobserver.com.au/images/2018/6/6/Omni%20Figure%201.png" target="_blank"><img src="https://www.urban.com.au/images/2018/6/6/Omni%20Figure%201.png" alt=""></a>
In CBRE’s Asia Pacific Millennial Survey, online shopping was selected as the most frequent method of purchasing goods, with respondents shopping online an average 4.9 days in Australia. However, millennials frequent bricks and mortar stores more than other generations preferring to make a final transaction in-store. This demonstrates the necessity of an omni-channel strategy to attract shoppers.
Retailers benefit from incorporating omni-channel operations into their business with successful omni-channel operations shown to improve loyalty, and repeat visitation to the retailer’s stores increasing up to 23% after strong omni-channel engagement.
Omni-channel engagement provides tailored analytics and by analysing customer data, retailers can more easily target a specific market through the most successful channel.
Greater choice in products and services is also dictating where individuals spend money, as a result shoppers are not as brand-loyal as they used to be so positive experiences for customers are vital for repeat sales and the ability to offer personalised services will prove crucial for both attracting business and building customer loyalty.
A McKinsey study showed that 25% of consumers were willing to pay extra for same day or instant delivery and this is expected to increase in coming years as just over 30% of millennial customers are more likely to choose same-day and instant delivery.
<img src="https://www.urban.com.au/images/2018/6/6/Omni%20Figure%202.png" alt="">
However reverse supply chain operations are equally important, with growing costs on both retailers and the environment as the volume of returns results in roughly two billion kilograms of goods being sent straight to landfill each year in the US alone because the cost of processing the return exceeds the cost of disposing of it.
Strong returns policies create customer loyalty and if a returns process is not easy, cheap and efficient, shoppers are not likely to use that retailer again, whereas if it is, 92% of consumers would consider making another purchase through that retailer.
It is estimated that approximately 30% of all goods sold online are returned, and 30% of these returned products never find their way on to a secondary consumer, when observing returns of clothing and apparel is 40%, which in 2017 means $2.32 billion of goods were sent back to retailers costing them 10-20% of their profits. 
Research found that 19% of the Top 250 retailers profitably fulfil omni-channel demand and that 28%. Total transportation cost is in the last kilometre meaning there is a growing competition for companies to secure warehousing and short term storage closer and closer to domestic centres. Particularly as Australian cities are built around ports meaning that industrial sites in these areas will be hotly contested as significant amounts of new logistics space will be required. 
Omni-channel retail and logistics in Australia is still evolving, and the cost of implementing last-kilometre delivery solutions for retailers, combined with Australia’s low population density, means same-day delivery and fulfilment is still a work in progress with the average delivery time in Australia being 3-10 business days, however despite this the convergence of retail and logistics is well underway.
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Retail purchasing facing omni-channel revolution: CBRE

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GUEST OBSERVATION
Many predictions about the “future of retailing” have been made. These range from the supposed dominance of certain technologies, to increased use of data and analytics, the rising need for personalisation and customisation, and the transformation of physical spaces.
The challenge with specific predictions is that these are susceptible to becoming obsolete fast. Future technologies are likely to make the current cutting-edge redundant, and the methods by which customers can customise products are likely to look very different in the future.
However, when you take a step back, some common themes emerge from these predictions, such as convenience, customer experience, business intelligence, and personalisation. It’s these themes that will really shape the future of retail.
Many specific predictions about the use of new technologies, for example, link back to the notion of providing convenience to shoppers, or learning more about customers.
Predictions relating to the rising use of data and analytics are about becoming more intelligent in interactions with customers.
While the specifics of each theme may change, their impact is likely to stay. For example, convenience in the future may relate to payment technologies, store opening hours, or other as yet unknown methods. Whatever the case, the drive for convenience is likely to persist.
While some themes are easily identified, others are less obvious; including fragmentation, flexibility, and transparency.
Fragmentation
At a population level, PWC describes fragmentation as the widening gap between the “haves” and the “have nots” and the impact this has had on consumer behaviour. Similar fragmentation is driving the future of the retail industry in a number of ways.
A common prediction is that retail space (including stores and centres) will become smaller. Yet some retailers are opening new flagship stores and some already large centres have been expanded.
Fragmentation is also occurring at the retail level. Mega-retailers like Amazon and Alibaba are holding strong positions in many markets. At the same time small, niche and independent retailers are gaining exposure through outlets such as Etsy and 100 Squared.
The major question arising from this theme is what will happen to the middle? Already department stores like Myer have struggled to find a place. They lack the range and scope of the largest retailers, but don’t have the independence and flexibility of niche operators.
Flexibility
Flexibility is about retailers adapting to changing trends and consumer demands. This is clearly seen in current trends and future predictions related to personalisation and customisation.
Allowing customers to customise products requires flexibility to adapt product or service offerings. At the same time, more flexibility is expected with physical spaces.
Traditional large store footprints are giving way to small and flexible showrooms. A new format of “super-neighbourhood” shopping centre is expected to focus on flexibility for local communities.
This theme has interesting implications for the future. How can stores and shopping centres be designed and managed to provide flexibility? How will the need for flexibility impact the already challenging relationships between retail tenants and landlords?
Finally, how far can flexibility in product and service design really go? Will retailers of the future be able to let consumers design anything they want with no boundaries?
Transparency
The idea of transparency has gained a lot of attention with discussions about Facebook and Cambridge Analytica. However, a similar theme is impacting retail.
Consumers have unprecedented access to information about stores, brands and products through online channels, mobile devices and consumer-to-consumer sharing.
This challenges retailers to be transparent and honest with product or service offerings, as misrepresentations are easily identified.
How can retailers best manage the need for transparency while still maintaining a competitive advantage? Alternatively, should retailers and shopping centres look to discourage consumer information-gathering? Or can transparency be leveraged to create mutual benefit for consumers and retailers?
What next?
Australian retailers have had a tough time in recent years. Online shopping is growing steadily and major international companies like Costco are also expanding.
This has turned retail into a global competition.
No-one really knows what the future will hold, as confident as some predictions may sound. However, considering the underlying drivers of current trends, as well as future predictions, there are some key factors to consider. The real value comes not from focusing on only one driver, or the latest buzz trend.
It is important to consider how these multiple trends overlap. For example, providing more flexible services might help satisfy the need for greater customer experience, as well as convenience. Alternatively, greater transparency might help cope with the fragmentation of the industry.
<img src="https://counter.theconversation.com/content/100518/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">The challenge for the retail industry is to develop specific strategies for the future based on these driving forces.
Jason Pallant, Lecturer of Marketing, Swinburne University of Technology
This article was originally published on The Conversation. 
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Retail Disruption

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